Rehypothecation Is Not The Problem When It Comes To The Missing MF Global Fundshttp://www.businessinsider.com/rehypothecation-is-an-old-story-mf-globals-story-is-a-different-story-of-filched-funds-2011-12/comments
en-usWed, 31 Dec 1969 19:00:00 -0500Tue, 03 Mar 2015 20:18:57 -0500Janet Tavakolihttp://www.businessinsider.com/c/4ef23e2769bedd6833000009Jon RIchardsWed, 21 Dec 2011 15:14:31 -0500http://www.businessinsider.com/c/4ef23e2769bedd6833000009
Always like your articles Janet, well informed and very readable. Just one point of grammar - "The Hunts NEW the value of their collateral' - surely should be KNEW with a K. Otherwise spot on as always!http://www.businessinsider.com/c/4ef23cc2eab8eaf820000006Gary AndersonWed, 21 Dec 2011 15:08:34 -0500http://www.businessinsider.com/c/4ef23cc2eab8eaf820000006
Deregulation is a failure when it comes to the financial sector. But you can't regulate where all this took place, the UK financial cabal. We deregulated only after the UK deregulated, long ago. They are the experts at casino betting.http://www.businessinsider.com/c/4eebb3a4eab8ea413d000005Ford PrefectFri, 16 Dec 2011 16:09:56 -0500http://www.businessinsider.com/c/4eebb3a4eab8ea413d000005
In most large companies, financial transactions in 7 digits get very serious senior management attention.
If Corzine or the CFO were unaware that $1.2 billion was moving around to places that were inappropriate, then it is clear that they did not have the financial controls that you would expect of your local deli.http://www.businessinsider.com/c/4eeb943a69beddc873000027Kelly JonesFri, 16 Dec 2011 13:55:54 -0500http://www.businessinsider.com/c/4eeb943a69beddc873000027
I was very interested to see this piece on Re-Hypothecation and MF Global and to hear your perspective. I've been following the story closely, both as a fiduciary for my clients, and to gauge whether greater awareness of the practice or new restrictive rules related to re-hypothecation might impact markets and therefore our investments.
Clearly, you're appropriately trying to draw a distinction between the theft of segregated assets and any issues related to re-hypothecation. But, to me, you also came across as an industry partisan defending, inappropriately, I believe, lax regulation, in this case of re-hypothecation, which members of the profession often seem to champion, (with the exception of Mr. Duffy, I should note). I therefore truly didn't understand, and think that you're very much on the wrong track in attacking Representatives (Capuano and Miller I think it was) as providing cover for Corzine. I didn't think that's what they were doing at all. As Capuano said, the criminal issues are going to be determined elsewhere - the point of the committee is to try to find out what happened and whether any changes to laws, rules and procedures are needed. The fact that the 1.25 rules germaine to MF's situation were changed restrictively after MF Global went bankrupt quite appropriately raises, once again, questions about the viability of self-regulation in financial services - which I consider an obvious failure from the beginning of Reagan's de-reg of S&L's in the '80's, followed by organized insider pump and dumps of S&L's requiring yet another bail out by taxpayers. The link you provided didn't include the part of CME Group Chairman Duffy's statement in which he agreed with the Reps and stated the problem plainly - He said he wouldn’t speak for CME on re-hypothecation, but he personally would favor strong limitations because (from recollection): “if you use the same collateral for transactions with 20 different people, when they come looking for it, 19 aren’t going to find anything.” The story you tell regarding the silver re-hypothecation, on the other hand, is a success story, but the 2008 financial crisis includes stories of re-hypothecation gone vastly arwy, including AAA MBS - the very essence of the problem, and a situation at Lehman's UK subsidary as I understand it, in which many clients with re-hypothecated assets lost a lot of money or had funds frozen according to the IMF.
In that light, I found it typical and ironic that CNBC - also champions of lax regulations - neglected to cover any of the re-hypothecation questions from the hearing, in spite of they themselves asserting without explanation last week (likely on behalf of their JP Morgan sources, a primary MF Global creditor wondering if they can keep their margin calls) that client losses may have have been "legal" and therefore gone for good. Their sources apparently sided with Mr. Capuano regarding how Mr. Corzine's frustrating defense may play out, supporting their claim against the one likely transfer of client assets found so far.
Interactive Brokers, one of my brokers similar to MF Global maintains numerous accounts "for the exclusive benefit of clients" - since they're an international company, I have no idea where they're located or what the rules are for cross transfers. I'm not as clear as you seem to be that such transfers won't be seen as "plausible" deniability for criminal conduct by the courts under current rules.
You may be right that this was simply illegal theft. Maybe transferred directly from Chicago client accounts to a UK JP Morgan acct, for example. However, I think you've mistakenly given the impression that, in practice, it's not the hazy rules that themselves provide cover from prosecution for people like Corzine - but the congressmen talking about them - and that current rules on re-hypothecation are really okay. Even the head of CME group agrees with the Reps and thinks the current rules on re-hypothecation are not okay. I wish you would have at least let your readers know that. Also, CNBC David Faber reports that in the wake of MF Global, "collateral chains are shortening". Though it adds to de-leveraging stress, that seems entirely appropriate. I've been pulling my client funds back from risk.http://www.businessinsider.com/c/4eeb9317eab8ea6706000001AHFri, 16 Dec 2011 13:51:03 -0500http://www.businessinsider.com/c/4eeb9317eab8ea6706000001
Nice writeup.
Short summary: there's a difference between borrowing and stealing.
Semi-short summary: If MF Global had merely borrowed customer funds, the money would not be missing. It would have a corresponding asset that it went to pay for, like a Greek bond.
Instead MF Global (apparently) simply took money out of customer accounts and mixed it into its own accounts. And when customers asked for their money back, it sent them fraudulent checks.http://www.businessinsider.com/c/4eeb83e4ecad04f66c000014NicolasFri, 16 Dec 2011 12:46:12 -0500http://www.businessinsider.com/c/4eeb83e4ecad04f66c000014
The shameless wicked, greedy, thieves will be punished.http://www.businessinsider.com/c/4eeb82cd69bedd9d58000018Hugh AkstonFri, 16 Dec 2011 12:41:33 -0500http://www.businessinsider.com/c/4eeb82cd69bedd9d58000018
Janet, you are worth your weight in gold!!! Let me know if your fee is higher than that, just kidding. Great article!!!!!!!!!!!!!http://www.businessinsider.com/c/4eeb816becad04296300001ekrypticFri, 16 Dec 2011 12:35:39 -0500http://www.businessinsider.com/c/4eeb816becad04296300001e
The core problem which the article's author is conveniently missing, is that the rules were a lot more lax than she makes out.
However, I'm amused that so much attention is being paid to the minor mistreatment of a few thousand commodities speculators when millions of Americans are in the process of losing their homes.